To 'Protect' Facebook, Mark Zuckerberg Mimics AT&T In the 20th Century

To 'Protect' Facebook, Mark Zuckerberg Mimics AT&T In the 20th Century
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Is Mark Zuckerberg becoming Theodore Vail, the AT&T president who turned the company into Ma Bell about a century ago? It looks like it. And consumers and social media may be the worse for it.

Mr. Zuckerberg’s recent endorsement of greater internet regulation would make Mr. Vail proud. In the face of growing calls for burdensome regulations and even the breakup of this company, the Facebook chief has proposed a government oversight of Facebook user content, government standards for political advertising, the adoption of European-style privacy regulations, as well as new government regulations for transferring user-related data across social media sites. These mirror nicely the way Vail mollified AT&T’s critics, unified the industry, and protected AT&T from more onerous regulations.

When Theodore Vail became president of AT&T in 1907, (his second time as head of the company created by Alexander Graham Bell), he found a company in peril. AT&T was losing brutal competitive battles — its market share had plunged from 100 percent to 50 percent in 12 years — and there were talks of a government takeover of telephone lines.

Vail immediately embarked on a strategy to appease his critics. He bought off rivals whenever possible, and encouraged those he couldn’t buy to divide up markets and adopt AT&T as the nation’s single long distance service provider. This placated politicians who had been critical of cities being laced with duplicative telephone networks, but AT&T’s growing influence also created anxiety about monopolization. Vail satisfied market power critics by accepting regulation.

Vail even cooperated with the federal government when it took over telephone companies in 1918, putting them under the control of Postmaster General Albert Burleson. The two men found common cause in a shared belief that competition was undesirable and that a consolidated industry, operating as a single system, was better. The government gave up control a year later, but by then US telephone companies were operating in concert, and AT&T’s share of US telecommunications had grown to 64 percent, up from the 50 percent it held in 1907. By 1934, AT&T’s share had grown to 80 percent. The government-blessed monopolization held together for another 30 years until the emergence of MCI.

By giving critics what they ask for, and embracing regulations that would soften competition, Mark Zuckerberg is laying out a strategy that echoes Vail’s.

Rivals and industry critics have voiced concerns that Facebook and other large tech companies are data monopolies. A regulated system for transferring data about users across companies would give these critics exactly what they ask for, but the blessing from large tech companies would come with a curse for smaller rivals: The shared system would force them to play by the big guys’ rules. It could also require them to give up unique intelligence that they might have gathered, and otherwise used to gain competitive advantage. And protecting data would become a system problem, not a Facebook problem.

In addition, two other perennial Facebook headaches would become somebody else’s problem. By effectively handing the policing of “harmful content” over to an independent oversight group and governments, the plan would rid Facebook of responsibility for user-provided content. And the recommendation that governments should create definitions for acceptable political ads would allow social media sites to wash their hands of difficult situations, such as when Facebook allowed Russian ads during the 2016 campaign season, but temporarily silenced the pro-Trump American livestream video bloggers, Diamond and Silk.

Zuckerberg also embraced the European Union’s General Data Protection Regulation (GDPR), and encouraged the US and other countries to adopt it. This rule protects large tech companies from competition, as evidenced by the declining number of tech startups in Europe. The GDPR requires that information about Europeans be erasable, and that someone be accountable (and risk being sued) for possible GDPR violations. These provisions threaten the use of blockchain technologies, which are designed to make data immutable and in some cases like bitcoin, have no legal entity that is responsible for the blockchain.

The political pressures on Facebook and other large tech companies must be immense, so developing strategies for placating critics is understandable. But if the regulations proposed weaken competition in the social media marketplace and the marketplace of ideas, consumers and social media will be the worse for it.

Mark A. Jamison is a Visiting Scholar at the American Enterprise Institute and the Director of the University of Florida’s Public Utility Research Center where he is also Gunter Professor.

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